Benton v. Adams, No. 02SA158.

• Decision Date: 15 October 2002
• Docket Number: No. 02SA158.
• Citation: 56 P.3d 81
• Parties: In re Oren L. BENTON, as trustee for June Adams Q-Tip Trust, Plaintiff, v. John R. ADAMS, Defendant/Third Party Plaintiff, and Oren L. Benton, Third Party Defendant.
• Court: Colorado Supreme Court

56 P.3d 81

In re Oren L. BENTON, as trustee for June Adams Q-Tip Trust, Plaintiff, v. John R. ADAMS, Defendant/Third Party Plaintiff, and Oren L. Benton, Third Party Defendant.

No. 02SA158.

Supreme Court of Colorado, En Banc.

October 15, 2002.

Thomas C. Seawell, Denver, Colorado, Attorney for Petitioner John R. Adams.

Oren L. Benton, Denver, Colorado, Pro Se Respondent.

Lottner Rubin Fishman Brown & Saul, P.C., Curt Todd, Denver, Colorado, Attorneys for Respondent June Adams Kilkenny.

Justice HOBBS delivered the Opinion of the Court.

In this original proceeding under C.A.R. 21, we issued a rule to show cause to review the trial court's denial of petitioner John Adams' motion for leave to amend his answer, add counterclaims, and join a third party to make a claim against her through interpleader.

We now make the rule absolute, holding that (1) the trial court erred as a matter of law in determining that the interpleader amendment is futile, and (2) the trial court abused its discretion in denying leave to amend on grounds of delay and prejudice in the case.

Although we generally defer to trial courts in their case management decisions, this case is an exception. Nearly a year passed without the case proceeding beyond the complaint and answer phase. While we understand the trial court's desire to move this case toward completion, the trial court should have not expedited the case by denying Adams leave to amend. Adams' interpleader was not futile and the prior lengthy delay in the case was not attributable to him. He offered his answer amendments in a timely manner, and the trial court should have allowed them. Up to that time, virtually nothing had occurred to move the case to trial. No case management order had been entered. No discovery had occurred. Adams made sufficient allegations setting forth a reasonable belief that he would be exposed to double liability for the same obligation if the trial court would not allow his answer amendments. Under the circumstances, we order the trial court to allow Adams' answer amendments.

I.

This case arises from the establishment of the June Adams Qualified Terminable Interest Property Trust in 1983. The Trust's two trustees, John R. Adams (Adams) and Oren Lee Benton (Benton), are parties to the case.¹ Although the complaint did not name the sole beneficiary of the trust, June Adams Kilkenny (Kilkenny), she has filed briefs in this Court—as she did in the trial court— resisting Adams' attempt to add her as a party.

The Trust in 1986 through then co-trustees Benton, Adams, and David Carmichael, and by the agreement of Kilkenny, exchanged all of the assets of the Trust for a special class C limited partnership interest in Energy Fuels, Ltd. ("EFL interest"), a company Adams controlled at that time. The partnership interest included an agreed upon capital account and entitled the Trust to monthly guaranteed payments. Adams agreed to guarantee EFL's obligations to the trust ("1986 Guarantee").

Adams in 1991 transferred EFL to a Benton controlled partnership. In connection with this transaction, Benton agreed to indemnify Adams for all expenses paid pursuant to Adams' 1986 Guarantee ("Benton Indemnification"). EFL made the required payments to the Trust until March 1995, when it filed a bankruptcy petition. Benton and his other related entities filed for bankruptcy at the same time. When EFL filed for bankruptcy and ceased making payments, Adams' obligations under the 1986 Guarantee effectively became the only asset of the Trust.

Adams failed to meet his obligations to the trust, prompting Kilkenny to file a lawsuit against him. In a September 1997 Confidential Settlement Agreement ("Settlement Agreement"), Adams and Kilkenny resolved that suit. Pursuant to the Settlement Agreement, Adams has been making payments directly to Kilkenny. In return for Adams' performance under the Settlement Agreement, Kilkenny released Adams from liability to the Trust.

Benton filed the present lawsuit in his individual capacity, rather than as trustee, to compel Adams to make payments to the Trust under the 1986 Guarantee. Adams responded on April 19, 2001 by filing a motion to dismiss, arguing that Benton lacked standing to sue in his individual capacity. Adams also filed a third-party complaint against Benton, individually, asserting an indemnity claim against him based on the Benton Indemnification.

Benton had filed his complaint on February 28, 2001. Without holding a hearing, the trial court on June 26, 2002, denied Adams' motion to dismiss and granted the motion Benton had filed to amend his complaint to bring the action in his trustee capacity. C.R.C.P. 121 § 1-15(5) provides in relevant part that "[w]henever the court enters an order denying or granting a motion without a hearing, all parties shall be forthwith notified by the court of such order." The clerk's entry of the trial court's minute order shows that notice of this order went to Adams but not to Benton or his counsel.

With leave of the court, Benton's counsel withdrew from representing him at the end of July of 2001. Benton then proceeded pro se and did not check on the status of the court's ruling regarding Adams' motion to dismiss and Benton's motion to amend the complaint. The trial court entered an order to show cause on November 11, 2001 why the case should not be dismissed for lack of prosecution. C.R.C.P. 121 § 1-10(2) provides, in pertinent part:

The court, on its own motion, may dismiss any action not prosecuted with due diligence, upon 30 days' notice in writing to each attorney of record and each appearing party not represented by counsel, or require the parties to show cause in writing why the case should not be dismissed.

Benton responded to the show cause order on the basis that he had no notice of the trial court's order granting him leave to amend his complaint. On December 19, 2001, the court allowed Benton to proceed with the lawsuit.

On January 3, 2002, Benton filed his Amended Verified Complaint, naming himself as trustee in bringing the action against Adams. On January 24, 2002, Adams filed his Answer to the Amended Verified Complaint. On February 3, 2002, Adams sought leave to file an amended answer to (1) assert an interpleader claim against Benton as trustee, and Kilkenny, individually, asserting that Benton's lawsuit exposed him to double liability on the same obligation, because Benton's suit sought to recover on a liability that Adams had already settled with Kilkenny;² (2) join Kilkenny as an additional party so that he could assert a claim against her; (3) lodge four affirmative defenses to Benton's claims; and (4) amend the third-party complaint against Benton, individually, for indemnity by Benton for the claims Benton asserted in the Amended Verified Complaint.

The trial court ruled that Adams' answer amendments failed to state a claim against Kilkenny and would cause prejudice and delay. The trial court's ruling states as follows, in its entirety:

Courts may properly deny leave because of delay, undue expense or other demonstrable prejudice to an opposing party. In this matter there is both delay and prejudice that would result. Over one year has elapsed since Benton has commenced this case. Additionally the court does not find that there are legally sufficient grounds for the assertion of a third party claim against [Kilkenny].³

Adams filed a C.A.R. 21 petition for an order to show cause to allow his answer amendments, including the interpleader. We issued the Rule and now make it absolute.⁴

II.

We hold that (1) the trial court erred as a matter of law in determining that the interpleader amendment is futile, and (2) the trial court abused its discretion in denying leave to amend on grounds of delay and prejudice.

A. Standard of Review

An original proceeding is not a substitute for an appeal, but we may act to exercise our discretionary jurisdiction under C.A.R. 21 when an adverse procedural ruling significantly impairs a party's ability to litigate the controversy. Lutz v. Dist. Court, 716 P.2d 129, 131 (Colo.1986).

1. Amending Pleadings

The purpose of our Civil Procedure Rules is to secure a just, speedy, and inexpensive determination of every action. C.R.C.P. 1(a); Eagle River Mobile Home Park v. Dist. Court, 647 P.2d 660, 662 (Colo. 1982). Focus is upon resolution of actions on their merits in a reasonable, expeditious manner. 4 Sheila K. Hyatt & Stephen A. Hess, Colorado Civil Rules Annotated 186 (3d ed.1998). Pleadings should represent the true position of the parties. Zavorka v. Union Pac. R.R., 690 P.2d 1285, 1290 (Colo.App. 1984).

In many cases, delay standing alone may justify denial of leave to amend, if active case management has occurred to minimize delay. Delay devalues judgments, creates anxiety in litigants and uncertainty for lawyers, results in loss or deterioration of evidence, and wastes court resources. Burchett v. South Denver Windustrial Co., 42 P.3d 19, 21 (Colo.2002). If a party seeks leave to amend after substantial progress toward trial has occurred, or if granting leave to amend would significantly delay the progress of the case to trial, a trial court may deny leave to amend if it should have been brought earlier.

Granting leave to amend is within the sound discretion of the trial court; our review is for the purpose of determining whether or not the trial court abused its discretion in ruling on the motion to amend.⁵ Polk v. Dist. Court, 849 P.2d 23, 25 (Colo. 1993). When a trial court denies leave to amend on grounds that the amendment would be futile because it cannot survive a motion to dismiss, we review that question de novo as a matter of law. E.g., Blakely v. United States, 276 F.3d 853, 874 (6th Cir. 2002)

; Watson v. Beckel, 242 F.3d 1237, 1239-40 (10th Cir.2001).

Reflecting a liberal policy toward timely amendments to pleadings, C.R.C.P. 15(a) encourages trial courts to look favorably upon motions to amend. Polk, 849...